Reverse Repo rateis the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest.An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.

The rate at which the RBI lends money to commercial banks is called repo rate.It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. The repo rate in India is similar to the discount rate in theUS.

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks

Current rates (As on June 2012)Reverse Repo rate :7%Repo rate:8%

Such a fantastic blog... really awesome information provided by you your blog is really nice and informative.i am sure that these information is very helpful for me. thanks for sharing such a great information... keep continue posting best of luck for your next post...

Reply

Leave a Reply.

Author

This blog page covers the topics which all Commerce students should know .